You’re right, of course.
I think the Wealthify fees, for example, are too high for what they offer. It’s too easy to take first time investors for a bit of a ride.
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worth a read on the value of moneyfarm to “beginner” investors
https://moneytothemasses.com/saving-for-your-future/investing/moneyfarm-review-right-investment
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Yeah I know the standard fees.
The way I look at it is that it’s a relatively low risk option for people who want to play the game without reading the rules…
Once FreeTrade has more options, I’d have no problem replicating the funds on there.
BUT… Wealthify still has a semi human managed aspect to it.
Only today, I received an email telling me that they’ve moved some things around to take advantage of the market etc etc.
You wouldn’t get that if you did it yourself.
Definitely pros and cons to it, but if you already know about the markets, you probably won’t need to worry about robo advisors.
All the evidence says that the vast majority of professional fund managers do worse than the market even ignoring fees - they just make too many mistakes even if some of their actions help. I doubt Wealthify is an exception here - each action they take is additional risk and additional cost. This is why people like Buffet or Bogle recommend a straightforward index tracker for most people.
I think Freetrade or Monzo really could compete here - there is a huge market of people with little interest in stock markets who would be well served by a simple tracker product which has very low fees (much lower than 0.7% additional to fund fees, more like 0.1% additional or a flat fee) and no trading, timing, sector rebalancing etc - just invest in one global tracker every month and be done. The return is significantly higher than cash savings with little additional risk for long term savings. This would perfectly suit people who are being charged much higher fees than they need to pay because they are confused by all the jargon employed by the financial markets but want a higher return.
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So Moneyfarm is trying to “capture the upside” with every twist of the market.
Maybe successful for 38 months, but what about 38 years?
It’s maybe a shame dozens hasn’t taken that approach. The app is definitely well placed to deliver that.
I’d love to see the clear evidence for this - I think you’re going to struggle to find it to be honest because very little is black and white in the investment management industry.
Everyone will take a different stance on that particular question but this recent article provides some interesting background: https://www.institutionalinvestor.com/article/b1dy2wqxgmgbdv/Here-s-Where-Active-Management-Actually-Works
There are so many variables - what asset classes are you invested in? presumably you’re talking about active managers vs passive managers? are the managers ‘active’ in stock selection, sector or asset classes? what risk profile do you have as an investor? how much downside risk can you tolerate? how much liquidity do you want/need? what are your actual goals? consistent returns over time or maximising return regardless of all other factors?
This is not a clear cut issue and returns cannot be compared easily. For example, the Nutmeg fund profile set out in a few posts above includes a Fixed Income allocation so (to the person making the comparison) shouldn’t be compared to the FTSE 100 which is 100% equity.
By the way, the FTSE has done poorly relative to the S&P500 over the past decade - you’d have been better having underperformed the S&P vs outperformed the FTSE. Would underperforming the S&P be a good or bad result in those circumstances?
It’s all relative. If a robo advisor helps someone with no experience earn a net of fees return in excess of inflation within a risk profile they’re comfortable with, I’d suggest they’re providing the type of service that is useful.
That said, clearly not for everyone and there is obviously some mileage in directly buying funds directly if you’re experience enough to understand the level of risks you’re accepting.
There are quite a few studies on it - over long time periods it’s very hard to beat indexes for fund managers:
https://www.ft.com/content/c6183f2f-f58a-3569-a6ac-9d2b44adfe28
I also do trust the input of some very successful investors (themselves quite good at beating the market), who recommend trackers.
I think shouldn’t be compared is a bit strong. Pricing of risk is very difficult and there are systemic problems with it in the industry which haven’t been fixed (problems which led to 2008 for example are still there). I’d say you absolutely should compare returns and discount small variations in the (largely unknowable) risk. Obviously there are extremes, but many products sold as safe or safer are not safe in a crisis.
Retail customers are IMO better off managing their own risk by having a cash pot separate from long term investments, then investing globally, not by buying into a managed portfolio with lots of reassurances but little actual basis for its risk assessment.
I don’t trust the risk profiles, and don’t think anyone should. Broken risk profiles (of both customers and products) and complex bundles of opaque products are what lead to the 2008 crisis, and they have’t been fixed. Clearly at different stages of life different amounts of risk are acceptable, but I think for most people saving for > 10 years a lost cost global index tracker is the way to go rather than a managed product - almost entirely because of the fees, which make a significant difference, but also because long-term performance is not clearly better for managed anyway.
All good points and I agree that over the long term there are literally only a handful of managers globally who have demonstrated they can beat the wider equity markets.
I guess my point is that for most retail investors ‘beating the market’ shouldn’t and isn’t a goal. I don’t know enough about the claims made by robo advisors but I’d be surprised if they were claiming to be able to beat the market - but I still think there is value in the proposition without beating the market.
Risk profiles are not bullet proof and it’s not possible to quantify future risk by looking backwards. However, I’d still rather they try! It’s better than ignoring any risk considerations just because we can’t know what the next downturn/crisis will be/bring.
Like you, I’m also sceptical that the future will look like the past.
The issue is that they vastly under-perform the market, and charge you extra to do so. Adding insult to injury.
It isn’t even clear to me why they do this. Are they trying to justify their high fees by coming up with complex, hard to replicate portfolios? Or are they run by incompetents who don’t know how the stock market works? 
But it’s all relative - what ‘market’ are you saying the underperform relative to? S&P 500? FTSE 100? EuroStoxx50? US Corporate Bond market? US Gov’t bond market? European bond markets?
It looks like the ETFs they invest in are all passive, index trackers. If that’s the case, they’re going to match the market, less ETF fees, less investment management fees. No doubt they will be underperforming net of fees but gross of fees they should be matching the benchmarks of the underlying constituents.
Putting all your money into stocks is not what they do on any risk profile so yes, if you want to invest only in stocks, you’re probably going to see worse performance. That said, stocks have been on a tear since 2009 with only a few bumps in the road. If we saw a real market event (like the dot-com boom or the financial crisis) stocks would likely lose a third of their value or more whereas bonds returns could be positive.
It’s this diversification that can be important for a 5-10 year outlook - the last thing you want is to ‘need’ your invested money at the worst time. But that is a possibility for 95% of the population.
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The stock market as a whole, ie. global. That’s your safest way of investing, the way that doesn’t require you to make any predictions about how any subset of the market will perform in the future.
The zero-sum game is played across the global stock market. If you choose, as they have, to overweight certain geographical regions or market sectors, and your bet is wrong, you will underperform (even if you’re using ETFs to do this). Meanwhile someone else is over performing. But no one is over-performing consistently.
Which is why a consistently successful portfolio is “buy the whole stock market weighted by cap”. You literally can’t go wrong.
But these robo-advisors choose to go badly wrong while taking the money off those who don’t know better. I regard it as frankly unethical and disgusting.
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If I put 100% in to VWRL, I would have been up 10.5% over this time last year.
But now say my risk profile told me to invest in 40% bonds, and lets say those bonds had 0% effective gain. I’d still be up 6.3%.
From what I can tell, Nutmeg would have have gained somewhere around 4%. And I don’t know if that’s before or after fees.
I don’t think you’re really appreciating how bad these robo-advisors are.
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You obviously feel very strongly about robo advisors so we’ll have just have to disagree about whether they provide some value - clearly they don’t to you, which is fine.
My view is that part of what you’re paying investment management fees for is the managers view on the world. Whether that view is right or wrong or worth paying for is clearly a contentious issue!
I am over 25% since 2016 with Moneyfarm. That’s a decent return, sure someone somewhere will get more. Can’t we just agree that robo-advisers have their place.
Out of interest whats your thoughts on Financial Advisors who take a much bigger fee?
time will tell
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https://www.moneyfarm.com/uk/portfolios/ says that their annualised performance the past 5 years has been 7.5% before taking out their fees.
Did you manually calculate your 25% yourself, based on the money you put in and your take-home cash if you sold everything today? Ie. did you account for their fees?
Anyway, I can agree that ~7% per year is worthwhile in absolute terms, but is still poor given that you had and have other investment options which would have performed much better.
With moneyfarm you get lower performance than the market as a whole and higher fees than other investment platforms. In return, you get told what to invest in. How valuable is that?
You can go on any investment forum, such as https://www.reddit.com/r/UKPersonalFinance, and they will also tell you what to invest in, and how to do it. Only they won’t charge you anything for that advice.
Which is to say, being told what to invest in when you don’t have a clue about the stock market has a value of £0, since you can get the best possible advice for free.
Opening a Vanguard account and investing in the global all-cap fund is no more difficult than using any robo-advisor app. Indeed, there are probably less things to click through and think about.
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You would not use an FA unless you had a very complex financial situation and assets worth over £5m. Even then their fees would be debatable.
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